Since Forbes hired me in 1995 to write a legal column, I’ve taken advantage of the great freedom the magazine grants its staff, to pursue stories about everything from books to billionaires. I’ve chased South Africa’s first black billionaire through a Cape Town shopping mall while admirers flocked around him, climbed inside the hidden chamber in the home of an antiquarian arms and armor dealer atop San Francisco’s Telegraph Hill, and sipped Chateau Latour with one of Picasso’s grandsons in the Venice art museum of French tycoon François Pinault. I’ve edited the magazine’s Lifestyle section and opinion pieces by the likes of John Bogle and Gordon Bethune. As deputy leadership editor, these days I mostly write about careers and corporate social responsibility. I got my job at Forbes through a brilliant libertarian economist, Susan Lee, whom I used to put on television at MacNeil/Lehrer NewsHour. Before that I covered law and lawyers for journalistic stickler, harsh taskmaster and the best teacher a young reporter could have had, Steven Brill.

Why Does Your Salary Go Down When Your Boss Has A Child?

When male CEOs become fathers, they usually decide to pay their employees less and to pay themselves more. In general, wages for workers decline by 0.2% when the boss has a child. At the same time, CEOs pay themselves 4.9% more.

Those are the findings of a new study by three professors that was presented at the annual American Economics Association meeting in San Diego last weekend. The study, which appears in the December issue of Administrative Science Quarterly, looked at 10,655 companies in Denmark between 1996 and 2006. The data includes nearly 1,600 births to more than 18,000 CEOs. Most of the data comes from small and mid-sized companies with as few as ten employees.

According to David Gaddis Ross, the professor at Columbia Business School who presented the paper, he and his colleagues, Aalborg University economics professor Michael Dahl and University of Maryland Smith School of Business professor Cristian Dezso, focused on Denmark because the Danish government keeps a robust database of all of its citizens using a tracking number that’s similar to a social security number. The detailed data allowed Ross and his colleagues to look at what happens to employees’ salaries when their bosses have children. They could also examine the effect of first-born children versus later births, sons versus daughters, and the impact on male versus female employees. The researchers decided to focus on male CEOs because the data was much more voluminous than for women bosses. “We were very interested to see whether there would be something about a CEO’s family structure, specifically his transition to parenthood, that would affect the way he manages the firm he runs,” Ross explains.

In the paper, Ross and his colleagues theorize that the birth of a child makes a boss feel he needs “to husband his firm’s resources for himself and his growing family.” In other words, he thinks he needs more money. But the birth of a boss’s child doesn’t always mean shrinking pay for workers. If the child is both the CEO’s first and a girl, employees’ wages go up. Women get the largest hike, with their salaries rising 1.1%, while male workers’ pay goes up 0.6%. Why would the boss give raises after the birth of a daughter versus a son? The paper points to social science research showing that men who parent daughters “acquire more feminine values,” including being concerned about the well-being of others.

There is another dynamic at play, explains co-author Dezso: When the first child is born, the father “develops more awareness about motherhood and by extension the difficulties faced by women in the workplace.” That perception cuts against his impulse to pay less when he has a child. It also explains why, when the boss has a son, female employees’ wages fall just 0.2%, compared with a 0.5% decline for male workers and in fact go up after the birth of the first child, by 0.8% if it’s a boy and, as I mentioned above, 1.1% if the baby is a girl.

Did the researchers find what they expected? Ross says they weren’t surprised that when bosses have children, they pay their employees less and themselves more, especially because the Danish sample is skewed toward smaller companies. But he and his colleagues were surprised at the effects on bosses of having a first-born daughter, that that not only helps female employees but benefits male employees as well.

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Wow, did they figure out what goes inside the person’s head just by looking at some made up statistics!? And they found that every single CEO thinks like that?

People with a background in exact sciences are trained analyze things and determine its components and how they interact with each other. It is good because it makes me immune to this type of non-sense. A series of unrelated acausal guesses and non sequiturs.

Every CEO wants to pay themselves more money. That’s why the difference of salary of those who talk and those who actually do the work is so big.

Thank you for your comment. The professors cite a number of social science research papers that back their theories about why male CEOs who have kids pay their employees less. But the professors acknowledge that these are theories. They do have hard data from Denmark about employees’ salaries and CEO compensation following the birth of CEOs’ children. They didn’t make up those statistics.

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